Analog Devices Inc. reported an 81% decline in earnings and reduced output of semiconductors, dashing hopes of many investors of a recovery anytime soon for the battered sector.

Sales in the fiscal third quarter ended Aug. 1 were $294.9 million, down 7% from $318.1 million a year ago. Net income fell to $8.8 million, or six cents a diluted share, from $46 million, or 26 cents per share, a year before. The quarter included a $17...